Vital Farms, Inc.

Good day and thank you for standing by. Welcome to the Vital Farms first quarter 2023 earnings conference call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during your session, you will need to press star 11 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, Press star 11 again. Please be advised that today's conference is being recorded. I would now like to hand over the conference to your speaker today, Matt Siler, Vice President of Investor Relations. Matt, please go ahead.

Thank you. Good morning, and welcome to Vital Farms' first quarter 2023 earnings conference call and webcast. I'm joined on today's call by Russell Diaz-Conseco, President and Chief Executive Officer, Steve Vrita, Chief Financial Officer, and Catherine McKeon, our Chief Marketing Officer. By now, everyone should have access to the company's first quarter 2023 earnings press release issued this morning. This is available on the investor relations section of Vital Farms' website at investors.vitalfarms.com. Through the course of this call, management may make forward-looking statements within the meeting of the federal securities laws. These statements are based on management's current expectations and beliefs and involve risks and uncertainties that could cause actual results to differ materially from those described in these forward-looking statements. Please refer to today's press release and to the company's quarterly report on Form 10-Q for the fiscal quarter ended March 26, 2023, which will be filed with the SEC today and other filings of the SEC for a detailed discussion of the risks that could cause actual results to differ materially from those expressed or implied in any forward-looking statements made today. Please note that on today's call, management will refer to adjusted EBITDA and adjusted EBITDA margin, which are non-GAAP financial measures. While the company believes these non-GAAP financial measures provide useful information for investors, the presentation of this information is not intended to be considered in isolation or as a substitute for the financial information presented in accordance with GAAP. Please refer to our earnings release for reconciliation of adjusted EBITDA and adjusted EBITDA margin to the respective most comparable measures prepared in accordance with GAAP. And now I'd like to turn the call over to Russell Diaz-Conseco, President and Chief Executive Officer of Vital Farms.

Thanks, Matt. Good morning, and thanks, everyone, for your time today. I'm going to start by sharing updates on how we delivered on our commitments to all of our stakeholders during the first quarter. Catherine will provide an update on how our brand continues to resonate with consumers. Finally, I'm happy to introduce our new Chief Financial Officer, Tilo Vrida. who will provide more depth on our quarterly results and our annual guidance before we take your questions. It was a great first quarter. We achieved $119.2 million in net revenue, which represents the highest quarterly result in the history of Vital Farms. It reflects a 54.7% increase from the prior year period and was driven by volume growth of 26%. our sales and marketing teams continue their efficient execution despite the dislocations in the marketplace. Our gross margin expanded by over 700 basis points to almost 36%, which is a testament to the work of each stakeholder throughout our supply chain. Finally, we had a record adjusted EBITDA of about $14 million, up significantly versus last year, and we achieved an adjusted EBITDA margin of 11.6%. I think it would be helpful to provide some context on the egg industry as we continue to deal with the ramifications of avian influenza in the marketplace. The industry is still experiencing significant price inflation, which is illustrated in the data. Looking at the 13 weeks ended March 26, 2023, the egg category saw retail dollar growth of about 65% due mostly to price inflation of conventional eggs. Retail volume in the category saw a 6% decline, which accelerated relative to the flat performance the industry experienced over the prior two quarters. As to an update on Avian influenza, the size of the laying flock in the United States has begun its recovery as we had expected, but remained below its average size in recent years during the first quarter. We continue to operate with the assumption that the egg supply in the United States will continue to expand as the year progresses. as the size of the U.S. laying flock recovers, barring another outbreak. In terms of our performance, our retail volume grew at over 12% during the 13 weeks ended March 26, 2023, which was well ahead of the category decline. Our volume share expanded by over 50 basis points compared to the same period last year. Additionally, the elasticities we experienced at retail during the first quarter were in line with our expectations. demand for Vital Farms products remains robust. We are reiterating our fiscal year 2023 guidance, as TILO will expand upon shortly, which we think is appropriate at this early stage in what will certainly be a dynamic year in the marketplace. Our focus will remain grounded in driving long-term positive outcomes for each of our stakeholders. We've been intentional about the choices we've made over the past several years build our business with this as our primary goal we believe the many decisions we make each day fully consider each of our stakeholders which contributes to our enduring success we will maintain our balanced long-term stakeholder focus regardless of what is going on in the external environment we've demonstrated that we can grow through and following the pandemic On an annual basis, our net revenue CAGR is 37%, dating all the way back to my arrival in 2014, without a negative year-over-year revenue growth rate as a public company in any quarter. We've guided for at least 25% net revenue growth again this year, on top of close to 40% net revenue growth in 2022. And we expect volume growth to play a meaningful part in addition to the impact of price increases. We have multiple proof points that demonstrate our ability to effectively manage our business through changes in pricing and inflationary volatility. We have worked with our farmers to help them navigate a more challenging operating environment and are paying them more for the hard work they do daily. Despite the higher cost of Vital Farms, we're planning on better gross margin performance in 2023 compared to 2022. We have improved our processes around both inbound and outbound freight. Over the past year, we were able to leverage the external operational capabilities of our third-party logistics providers to deliver significant value in terms of cost and service. The effort of our crew members to manage those stakeholder relationships resulted in better truckload utilization and lower contracted shipping rates. We completed in April 2022 an expansion of Egg Central Station, our world-class egg washing and packing facility, on time and on budget, and are now in a position to support over $700 million in annual revenue from egg sales. We have maintained our commitments to stakeholders, even in the context of serious industry disruptors like avian influenza. We have purposefully built a network of over 300 family farms that provides resilience against these types of constraints. And as a result, avian influenza has had a minimal impact on our business to date. I want to reiterate my confidence in our ability to operate efficiently throughout this ever-changing environment. Our guidance reflects a reasonable set of assumptions about what may unfold across the economy in the second half of the year. We are in a position of strength with respect to our plans for the remainder of 2023. I'll now turn the call over to Catherine to provide an update on our brand.